Employer-sponsored health insurance costs rose 6.3% in 2021

The average per-employee cost of employer-sponsored health insurance jumped 6.3% in 2021 — reaching $14,542 — as employees and their families resumed care after avoiding it in 2020 due to the pandemic. That’s according to Mercer’s 2021 National Survey of Employer-Sponsored Health Plans, which included 1,745 public and private employers of varying sizes.

With the highest annual increase since 2010, health benefit cost outpaced growth in inflation and workers’ earnings through September, Mercer officials said, raising the question of whether employers are seeing a temporary correction to the cost trend (following last year’s increase of just 3.4%) or the start of a new period of higher cost growth. As of now, employers are projecting what Mercer refers to as a “fairly typical” average cost increase of 4.4% for 2022.

“Employers seem optimistic that this year’s sharp increase is simply a result of people getting back to care,” Sunit Patel, Mercer’s chief actuary, said in a statement, noting that there is still cause for concern. “At the top of the list of concerns are higher utilization due to ‘catch-up’ care, claims for long COVID, extremely high-cost genetic and cellular drug therapies, and possible inflation in health care prices.”

Cost growth was sharper among smaller employers (50-499 employees), at 9.6%, while larger employers reported average cost growth of 5.0%. Additionally, spending on prescription drugs rose 7.4% in 2021 among large employers (500 or more employees) — driven by an increase in spending on specialty drugs of 11.1%.

Employee cost-shifting stalled in 2021

When health benefit cost growth accelerates, employers typically ratchet up cost management efforts to keep increases at sustainable levels, according to Mercer officials. However, the survey results indicate that one traditional cost management tool known as “cost shifting” — in which employers shift a larger share of the cost of health services to plan members — seems to be off the table for many employers.

In fact, concerns about health care affordability for lower-wage workers, along with the need to retain and attract employees in a competitive labor market, have resulted in an unexpected reversal in some health plan cost-sharing trends. Most employers not only held off on raising deductibles and other cost-sharing provisions, but some even made changes to reduce employees’ out-of-pocket spending for health services.

Prioritizing employee support

Benefit priorities have shifted in response to the pandemic’s impact on the workforce and evolving benefits landscape, too. Many employers view supporting the mental, emotional, and behavioral health of employees as a business imperative, Mercer officials said. Based on the survey results, adding or expanding programs to increase access to behavioral health care is a top-three priority for all large employers, and it is the number-one priority for employers with 20,000 or more employees.

“In today’s extremely tight labor market, generous health benefits can help tip the scales in attracting and retaining staff,” Tracy Watts, national leader for U.S. health policy at Mercer, said in a statement. “Beyond that, in the wake of the pandemic many employers committed to help end health disparities, and ensuring care is affordable for their full workforce is an important part of that.”

Indeed, the survey found that nearly half of all large employers (and about two-thirds of those with 20,000 employees) reported that addressing health equity and the social determinants of health will be an important priority over the next three to five years.